The Australian dollar has taken a notable tumble in recent months, and some investors may fear they’ve missed the boat in terms of taking on greater offshore investment exposure. In reality, however, the decline in the $A may well have only just begun, and offshore – unhedged – investments still seem worthy of serious consideration.
The drivers of financial markets change over time. One of the major investment themes of the past decade – namely the rise of China and the associated rise in global commodity prices – is likely to evolve in new ways over the next decade. This is likely to be associated with a weaker Australian dollar, and new country and sector leaders across the global economy in the next few years.
For starters, the Chinese economy is slowing as it grows in size and becomes more complex. Services, consumer spending and less fossil-fuel intensive industrial activity will figure more prominently in the China of tomorrow, which will reduce its once ferocious appetite for Australian coal and iron ore.